Hedge Fund Street

Hedges To Have Long & Healthy Life: Analyst

You can fret and fume about their secrecy, about their disproportionately large cache of resources and the inappropriate income of their managers. But you cannot wish them away. Hedge funds accounted for 28% of the fund management industry’s revenues last year, according to research from Merrill Lynch – that’s up from 20% in 2005. investmentnews.com reports:

The increase in revenues is mostly due to high fees and strong sales, and fueling the interests of large investment banks in hedge fund management companies. For instance, JPMorgan Chase & Co. of New York last week bought its fifth hedge fund holding, a 20% stake in Spinnaker Capital. These numbers signal that hedge funds are not just a trend, a Merrill analyst told Financial Times.

Read more: Hedges here to stay, says Merrill analyst

Changing Markets, Changing Trends

In the past few years, the hedge fund industry has exploded in size and has gone from about $500 billion industry in 2003 to over $1 trillion now. The most interesting aspect about this spectacular growth is the increase in the number and types of investors who have begun putting their money into hedge funds. As a result, hedge funds, which have traditionally been short-term investors in public stocks, have undergone a sea change. They have now become players in the buyout, real estate and even venture capital market. All this growth is to sustain returns in an increasingly competitive space.

But there is also an interesting aspect to this great growth story – a stunting of risk-taking ability. Today, hedge fund managers seem more reluctant than ever to make risky investments. Of course there are a few odd ones out there, but they only serve to underline the basic nature of hedge funds today – of toeing the line. The main reason is that their clients no longer want them to deal in risky investments. So, for fear of losing these customers and more importantly, their fees, which can only be called exorbitant, hedge fund firms are now learning to play safe.

As fund managers realized that they were making a killing by raising money from pension funds, endowments, insurance companies and other institutional investors, their taste for the dangerous diminished. And the decisive factor was the 2 percent per annum management fees from large amounts of assets. With all these benefits, it didn’t take long for caution to become the new byword for hedge fund managers. However, any which way you look at it, hedge fund firms seem to be the gainers. Their strategy of caution allows their investors to repose more faith into these firms, which then translates to more business and more money.

Understanding The Connect Between Private Equity and Hedge Funds

There is a recent trend that is worrying investors no end. Well, we can hardly call it recent, but the phenomenon of the convergence of private equity firms and hedge funds is getting quite a bit of attention nowadays. Affected investors now want a broader and better idea of this convergence and how it will shape things in the future.

A recent survey by Grant Thornton and the Association for Corporate Growth shows that the blurring line between private equity and hedge funds was driven primarily by hedge funds. These hedge funds seek higher returns and hence more capital to manage and the diversification of risk. At the same time, private equity firms are looking for ways to generate capital faster rather than waiting for portfolios to mature. Americanventuremagazine.com reports:

Additionally, the survey revealed that 83 percent of the private equity professionals pointed to hedge funds as the drivers of this trend. Hedge funds concur, with 52 percent saying that they are behind the convergence, and only three percent believe it is a private-equity driven phenomenon. Further, 39 percent of private equity respondents say the trend is having an effect on private equity investing, while only 23 percent of hedge funds say it is affecting their industry.

Read more: Blurring of the Line: Private Equity and Hedge Funds are Converging

Understanding Hedge Fund Like Funds

You know I’m up to my eyeballs in hedge funds. It is a full time job keeping track of all the changes that occur in this market. So when I thought I’d give you guys a taste of the world outside hedge funds, I discovered hedge fund like funds. Well, let’s reduce this confusion by saying that these are mutual funds with an identity crisis. These mutual funds try to behave like hedge funds and increase their investors’ returns.

The genesis of the pseudo-hedge fund trend dates to the 2000-02 bear market. During this time, hedge funds achieved rock star-like stardom and that was when hedge fund look-alikes began making their presence felt and they’ve been gaining in strength ever since.

A word of caution here: since many of the hedge-like funds are fairly new, their performance in down markets is unproven. And not all hedge-like mutual funds have posted market-beating returns in the bull market that began in 2003.

Hedge Fund On A Motoring Adventure

Now, tell me, is there any one area in which hedge funds may not have invested? Just curious you know. I mean I can stand the fact that they invest in oil, property, shares… everything but can you believe it, racing!

Yes, you got me right there. RAB Capital, one of London’s best-known hedge funds, recently acquired a majority stake in A1 Grand Prix, the so-called “world cup” of motor racing, from Sheikh Maktoum Hasher Maktoum Al Maktoum of Dubai. RAB Special Situations has taken an 80% stake worth £100m. As part of the deal, A1’s management will be restructured. According to RAB officials, their focus has always been on western-owned and western-run companies that sell successfully to Asia, and A1 fits with this. Timesonline.co.uk reports:

“We’ve made a fortune selling natural resources — copper, zinc, coal and so on — to the Chinese. This is the same: we’re selling motor racing to Asians, and with it the only event available for global brands to advertise across the continent in the context of a western company.”

Read more: Hedge fund roars into world motor racing

Hedge Funds On A Five-Figure Salary

Earn a five-figure salary but dream of being in the big league, buying and selling hedge funds and making your millions? Don’t despair. Agreed hedge funds are per se designed for millionaires, billionaires and the world's biggest institutional investors. Now, as market demand increases, hedge fund strategies seem to have gone retail.

There are many mutual funds in the market that mimic the "alternative" investment strategies used by hedge funds. This is done mainly to attract the 401(k) crowd. And what’s the best thing about these funds? The fact that minimum investments are as low as $500. Since 2003, the number of mutual funds that utilize hedge fund strategies has more than doubled, to 49 from 21, according to experts. Usatoday.com reports:

The proliferation of hedge-fund-like products for the masses is part of a bigger trend. "There seems to be a convergence of what was once considered non-traditional investments with the more traditional strategy" of buying stocks that you think will go up, says Phil Maisano, head of alternative investments at Mellon Asset Management.

Read more: Investors add a bit of hedge fund to portfolio mix

Party Time For European Hedge Funds

The returns haven’t been as good as expected. But this hasn’t dampened their enthusiasm if the number of new launches is anything to go by. What am I talking about? The effervescent enthusiasm that characterizes the European hedge fund market today.

The number of new fund launches and the level of total fund assets run by European managers have set new records in the first half of 2006. And as the industry grows in size, London is soon proving to be the undisputed leader and center of the European hedge fund management industry. A recent survey EuroHedge shows that more than 170 new European hedge funds were launched in the first six months of this year, up from 150 in the same period a year earlier. Hedgeweek.com reports:

Total European industry assets reached USD401bn at the end of June this year, an increase of 44 per cent from the June 2005 total of USD280bn and of 23 per cent from the total of $325bn at the beginning of 2006. The asset growth came partly from the impact of fund performance, but mostly as a result of fresh capital inflows, especially from private sector and local authority pension funds.

Read more: London tightens grip as European hedge funds boom

Hollywood & Hedge Funds: Budding Romance

You know I thought the hedge fund-Hollywood dalliance was a passing trend, like all other Hollywood trends. But this thing seems more real and serious as days go by. 20th Century Fox is supposed to be announcing a hedge fund-backed film financing deal worth more than $520m very soon. And all this is thanks to the box office success of Borat and The Devil Wears Prada, films in the first Fox-Dune slate.

The agreement will see Dune Capital Management refinance a slate deal – or agreement to produce several films – it struck with Fox at the end of 2005. As per the new deal, Dune will invest in at least 15 new films. And one of the films that will come out of this new agreement will be Bruce Willis’ never-ending saga of Die Hards. (Personally, I did like the first one but then it just seemed to be well… as I said, never-ending).

Hollywood Magic Casts Spell On Hedge Funds

So, what do you think is the latest investment Mecca for hedge fund managers? No, they are  not looking East for exotic investments -- rather it is much closer home. Hedge fund managers are now pouring billions of dollars into Hollywood, hoping to find block-buster returns in the film business that plain, old corporate investments cannot provide. Timesonline reports:

In the past three years more than $4 billion (£2.1 billion) of hedge fund money has been invested in Hollywood movies, with the lion’s share going to mainstream studios looking for new sources of finance. “Hedge funds are definitely the flavour of the month in Hollywood,” Larry Ulman, the head of the entertainment practice at the Los Angeles law firm Gibson, Dunn & Crutcher, said.

Read more: Allure Of Tinseltown Turns Hedge Fund Heads

Pension Funds Romancing Hedge Funds

It’s no news that pension funds are now increasingly looking to hedge funds to increase their investment returns. What is interesting is traditionally cautious pension funds are changing their portfolios to increase their allocation range for hedge funds. This means, they have seen the returns that hedge funds can offer them not just once or twice but over a period. And the best part is that these returns are consistently high. Much higher than what stock or bonds can offer. Add to this the fact that hedge funds have become more stable and don’t take too much risk, and you have a winning equation for pension funds.

Take for example CalPERS, the largest pension fund in the United States, which has over $210 billion worth of stock, bonds, funds, and private equity. It is now expanding its investment strategy into hedge fund managers. The fund also increased the target allocation range for hedge funds significantly, to as much as 5% of the plan’s global equities portfolio.

How hedge funds turned the tide

It’s no news that pension funds are now increasingly looking to hedge funds to increase their investment returns. What is interesting is traditionally cautious pension funds are changing their portfolios to increase their allocation range for hedge funds. This means, they have seen the returns that hedge funds can offer them not just once or twice but over a period. And the best part is that these returns are consistently high. Much higher than what stock or bonds can offer. Add to this the fact that hedge funds have become more stable and don’t take too much risk, and you have a winning equation for pension funds.

Take for example CalPERS, the largest pension fund in the United States, which has over $210 billion worth of stock, bonds, funds, and private equity. It is now expanding its investment strategy into hedge fund managers. The fund also increased the target allocation range for hedge funds significantly, to as much as 5% of the plan’s global equities portfolio.

Until recently, funds like CalPERS invested more than 70 percent of their assets with long-short equity managers. Initially it was a good idea as hedge funds in their earlier form were volatile by nature. Returns could be very high or there could be huge losses. Compared to this, the equity market was quite stable. Of course, the returns were not phenomenal but they were consistent and that was what mattered.

However, of late hedge funds now ensure that they afford their clients with the benefit of consistency along with their high returns. And now that traditional strategies, such as equity long-short, become more crowded, the returns get diminished. All this goes to benefit the hedge fund market that increases its customer base and gets more respectability in the bargain.

Illiquid assets cause valuation problems for hedge funds

Private equity has become the next big thing for hedge funds; only problem is that they are facing problems over the valuation of these new investments. The problem lies with a new Securities and Exchange Commission rules that requires hedge fund managers to register for the first time. Marketwatch.com reports:

Managers that prohibit investors from redeeming capital within two years are exempt from the rule and a number of hedge funds have used the lock-up process to escape registration. As a result, the number of hedge funds carving an illiquid asset out of an existing fund tying up investors' money for a period of several years - referred to as a side-pocket - has risen dramatically over the last few years.

Read more: Hedge fund hybrids face valuation snag on illiquid assets

Pension funds to invest in European hedge fund market

Mercer Investment Consulting, which surveyed more than 570 European pension funds with $364bn under management found that some 13% of continental European and Irish pension funds invest in hedge funds. This was almost double the number in the UK. Hedgeco.net reports:

“In the UK, 7% of funds invest in hedge funds, spending 6.9% of their assets on average,” Mercer said.

Read more: Pension Funds to Invest in European Hedge Fund Growth

Campus’ favor Hedge Funds

When institutes of higher education like Harvard and Yale begin to invest in hedge funds, it does give more than just a little respectability to the entire business. It also begins to make people realize that hedge funds are not the disaster-prone financial instruments that most laymen assume them to be. Hedgeco.com reports:

There are also some rising concerns toward this new trend, some endowments that have been trading in hedge funds are reconsidering. Oberlin College in Oberlin, Ohio, is one of them.

Read more: Investing in Hedge Funds on Campus

Hedge Funds are the flavor of the season on Campus

When institutes of higher education like Harvard and Yale begin to invest in hedge funds, it does give more than just a little respectability to the entire business. It also begins to make people realize that hedge funds are not the disaster-prone financial instruments that most laymen assume them to be.

In June 2005, Harvard and Yale invested 12 percent and 25 percent of their respective endowments in hedge funds. Their success in the field has encouraged many of the nation’s biggest schools to follow the Ivy League into hedge fund investment. The statistics tell the tale: Reed College in Portland, Oregon, has 58 percent of its endowment in hedge funds, and Hobart and William Smith Colleges is at 54.7 percent. And then there are schools, which have also invested in hedge funds. And then there are some small schools that are known to have hedged more aggressively than their larger counterparts. Hedgeco.com reports:

There are also some rising concerns toward this new trend, some endowments that have been trading in hedge funds are reconsidering. Oberlin College in Oberlin, Ohio, is one of them..

Read more: Investing in Hedge Funds on Campus

Boston leads in hedge funds: SEC

New federal findings may have put to rest the debate on which state is leading in the management of hedge funds. According to the findings, Massachusetts financial firms help manage more than $150 billion in hedge funds and other private investments. According to Securities and Exchange Commission estimates, this figure is about 10 percent of the $1.5 trillion held in private funds nationwide. Boston.com reports:

''Boston has historically been one of the largest players in the hedge-fund industry, because the city has a tremendous pool of talented managers in the financial-services sector," said Richard A. Goldman, coleader of the hedge fund practice group at law firm Bingham McCutchen.

Read more: SEC filings show Boston is a leader in hedge funds

What has school education got to do with Hedge Funds?

If you thought that school education has nothing to do with hedge funds, think again. Hedge-fund guru Joel Greenblatt applied Wall Street principles to an elementary school and won. P.S. 65Q was a small, struggling elementary school in working-class Ozone Park, Queens for quite some time.

It had opened some years back with the prime objective of providing education to children of extremely poor South American and South Asian immigrants. The school building itself was a former airplane-parts factory. The problem that the school was facing was that though it has over 540 students, they could not perform well in maths. In fact they could not even read properly. This situation was primarily due to lack of funds.

Greenblatt approached the school and after having a good look at the facilities asked the school to put up a figure that they would need. He wanted to accomplish a turnaround in education and learning level. The school authorities did their home work and put forth a proposal which was very much in line with what Greenblatt has thought they would need. They put forth a requirement of $1000 per student per year for 5 years in order to bring about the desired changes. This roughly translated into $ 2.5 million.

The hedge fund manager wanted to create an effective and affordable public-school prototype that could be franchised citywide. And this he did in a short timeframe of 5 years. In this period the school was able to turn around in a way that the genius had predicted. NY Metro reports:

“For weeks, Nelson fretted over how much to request. Finally, she decided to take Greenblatt at his word: To keep everyone from falling behind, she calculated, it would take an incremental $1,000 per student per year for five years, or $2.5 million”

Want to invest in hedge funds?

Man’s inherent desire to make his money generate more returns for him led to the invention of hedge funds. Hedge funds as one knows is an investment vehicle which is notorious for generating good returns when the others are trying to merely stay afloat. ‘Money creates more money’ – following this mantra, the hedge funds were initially designed for those with big bucks to spare. The funds used this money and by employing different strategies, were able to generate returns which ever way the market progressed. Risk and returns are always directly proportional and therefore for quite some time this asset class was reserved for those who could afford this risk and therefore reap the returns.

But now with the hedge fund market having crossed the $1 trillion mark, and with a phenomenal rise in the number of hedge fund operators, the booty is available for the not so rich average investors as well. The average middle class investor can also choose from various strategies available and make his money grow. It is imperative however to analyze the fund and its strategy and keep a close watch on the market as well. Read more on this in the C S Monitor report.

Hedge Funds see new growth in 2006

2005 was not a very good year for Hedge Fund managers, with most of them performing badly. Fortunately, the market looks more promising in 2006. The new year started with new opportunities by way of rising oil prices, an increased volatility in the Japanese stock market and some high level deals. Merrill Lynch Hedge Fund Index showed that the average hedge fund was up by 1.17 %.

A wave of take-over bids and restructuring happening in the corporate world has encouraged event driven funds to remain active. Equity and fixed income markets have shown a volatility that favor hedge fund investments. In January 2006, investments in emerging economies dominated the market. Hedge Fund managers see this as a 'phenomenal' start to the new year. CNN Money reports:

Top performing strategies for the month include emerging markets, which invest in the debt and equities of emerging economies. Emerging market hedge funds 'January performance is "just phenomenal," thanks to big economic gains in Latin America in particular, said Larry Smith, chief investment officer of global macro fund Third Wave Global Investors.

Prime brokers lose lead to multiple brokers as Hedge Funds grow

Hedge funds managers rely heavily on their prime brokers to keep a track of their various accounts with various companies. Most Hedge funds had one prime broker catering to their portfolio management needs. Not any more.

The recent growth in the hedge fund market is making prime brokerage an irrelevant idea. More and more fund managers are employing more than one prime broker to meet their growing business demands. Even smaller funds have more than one broker, while the bigger ones have as many as six to eight.

This has opened the market for the smaller players specializing in different aspects of portfolio management. In fact several large prime brokers have opened smaller firms servicing different areas. It has also helped Hedge funds as they are able to maintain greater confidentiality by not disclosing all of their information to one prime broker. Post Gazette reports:

"Most big funds use many prime brokers, which turns the concept on its head," says Michael Roth, a founding partner of Star Investments, which manages more than $7.5 billion in its various hedge funds. Star has a "core group" of six to eight prime brokers and relationships with as many as 20 smaller outfits.

Stocks attracting Hedge fund investors

It is no secret now that the overall performance of hedge funds has been by far the lowest in the last three years. This no doubt is not appealing the investors one bit. An overall shift in investment strategy of institutional investors and wealthy individuals is being witnessed. They are now looking at stocks with renewed vigor. They are now willing to invest their money with managers who bet on stocks and economic trends.

Luis Rodriguez who is the head of risk management at Manhattan Family Office in New York, predicts that Global macro will produce the highest returns. This will be followed by equity hedge funds. Luis Rodriguez invests more than a $1billion for a wealthy family. His feels that by following this strategy, he will be able to give a return of 8%.

In the first 11 months of 2005, Equity based hedge funds were able to garner a return of 8.2% where as Macro Funds returned 5.9% according to data compiled by Chicago-based Hedge Fund Research. Macro funds managers evaluate global economies to decide what stocks, bonds, currencies and commodities to buy.

The two strategies have also pulled a sizable part of the total money inflow in 2005. Long-short equity funds have raked in 20% where as macro funds attracted around 16% of the $47.7 billion that flowed into the market.

Till the end of November, hedge funds were able to give average returns around 7.5%. This is a sharp decline from the annual average return of the previous 10 years which is around 12.6%. IHT reports:

“It has been a difficult year to make money because stock and bond prices have barely moved and the Federal Reserve has raised interest rates 13 times since June 2004.”

Hedge funds find Ukraine stocks good for their future

Several countries which have till now been low key are now emerging on the radar of hedge funds. Hedge funds are waking to the existence of other economies that can fuel future growth. Chief amongst them is Ukraine. 

The country had emerged from its communist garb in the 1990s. But its liberalization began only in 2004 with the ‘Orange Revolution’ protests. Since then it has been demonstrating steady growth. A growth that has enabled it to earn market-economy status from the EU.

This new found status will help the country to establish trade relations with the 25 member block. Ukraine is also expected to join the World Trade Organization in 2006. This, analysts feel, will give further boost to its economy. In view of the recent developments and future plans, hedge funds are seeing the country as a viable market for generating returns.

Leila Kardouche, manager of the RAB Emerging Europe Fund feels that there is a lot of pent up domestic demand in Ukraine. She has also made the observation that investments have definitely picked up and future growth is inevitable with several entrepreneurs waiting to list their companies. The main sectors that the country is expected to show growth in are banking, industrials, mining and consumer plays. Kardouche’s RAB Emerging Europe Fund has more than $100 million under management. The fund has returned more than 25 % since its launch in 2004.    

Hedge finds are known to be constantly on the look out for avenues to generate better returns. Recent overcrowding of the market by several players has been pushing them even further to look for more money generating opportunities. When the conventional markets dry up, these funds are known to look elsewhere to improve performance.

This adaptability ensures that they almost always perform better than the equity market. The stock market has been throwing up lesser than usual number of opportunities to generate returns and is generally moving sideways. As such the funds are looking at other economies and tools to fuel their growth. Some time back it was the Asian markets that had caught the fancy of these somewhat secretive funds. While Asian markets continue to improve their profits they are keeping their eyes open for better opportunities to exploit.

Other countries that also seem to be attracting their attention are South Africa and Russia. Both these markets seem to have potential but as of now are battling with their own inadequacies. Lately they have had a decent and strong run in the stock market. However Kardouche feels that the markets definitely have good potential for hedge funds. Despite the optimism about the future, she feels that returns will not be as easy going in 2006.

      
Since the time Russia defaulted on domestic debt in 1998, it has been saved by record high oil prices over the last few years. Analysts feel that if oil prices came down to $20 to $30 per barrel, the growth would be phenomenal. On the other hand, South Africa has generally relied on its reserves of precious metals such as gold and platinum. The prices for these metals have also hit record highs in the last few months. Reuters reports:

“Ukraine threw off its communist shackles in the early 1990s along with other east and central European countries like Hungary and Poland and Baltic states such as Estonia.”

Now even the buyout industry is being encroached by hedge funds

Now hedge funds are attempting to takeover the key activity area of buyout firms in Europe. Over the last 18 months, hedge funds have been very successful in the arena and have now focused their attention to Britain. This revelation was made by Bob Wigley, Merrill Lynch’s chairman for Europe, the Middle East and Asia. He said that the hedge fund industry is going all out to expand its scale of funds under management by particularly focusing on private equity.

This move no doubt is giving the traditional buyout firms sleepless nights. First concrete step in this direction has already been taken by Malcolm Glazer who is backed by a hedge fund. He has bought over Manchester United Football Club for £790 million. Times Online reports:

“Bob Wigley, Merrill Lynch’s chairman for Europe, the Middle East and Asia, said that hedge funds were targeting the buyout firms’ traditional turf in Europe after testing the market in the US.” 

Hedge Funds now financing energy sector

Hedge Funds never seem to stop surprising industry watchers who are constantly keeping a sharp eye on the lightly regulated investment tool. When equity stopped giving the heady returns, they moved to investing in cinema chains. Hollywood movies came next. Simultaneously came financing of food and retail chains. Then came financing of IT companies and what not.

Now they have turned to the energy sector. Though their focus on the sector is not new, the way they are now associating with the sector is. Earlier they were involved in betting of global prices of oil, energy and related products. Now they have shifted focus to financing oil and gas companies all together. In doing just this they are encroaching onto the territories of banks and traditional money lenders.

Consider the example of Houston-based USA Superior Energy that wanted banks to provide $2.5 million in cash to buy some depleted oil fields in Texas, Kansas and Kentucky. The banks obviously declined as the proposition was far from being attractive. In fact with nothing but a plain idea and a proprietary technology in their hands, banks could not afford to put them selves at risk. The company has however managed a loan of $1 million from North American Globex Group, a New York-based fund at an interest rate of 12%.

North American Globex Group is just one of the eager hedge funds sitting on a large cash reserve ready to finance and make quick money on it. And there is hardly any thing better than investing in oil and gas now days with the oil prices crossing all known boundaries. The hedge funds therefore are not only seen investing directly in oil and gas companies but also in the companies that support them. This includes investing in companies that lease helicopters, sell down-hole technology and provide personnel and staffing etc.

The hedge funds have also been seen lending money for rebuilding the energy infrastructure in the Gulf after Katrina in the hope of literally striking (liquid) gold. One may find it interesting to see this shift of focus of hedge funds from what was known as their bread and butter. It shows the agility for the instrument to adopt newer markets and adapt to completely alien environments and give the local competition a tough time. 

With the ever changing global financial market, the ability of hedge funds to adapt to newer investment tactics has enabled them to survive. For instance, their strategies involving quick entry and exit from markets helped them to make huge profits in market swings. But in a sideways moving market, they have realized that it is wise to invest in something for a longer duration and wait a while for the interest to be generated on it. Hence they are now having a little longer focus of the market when they are in a financing mode. This is especially true in case of oil and gas financing where oil prices are almost always climbing up.

While they are investing in the sector, what is also lucrative is the option to own some part of the equity. And who knows, with an ‘equity kicker’ a hedge fund can reap unprecedented returns if the company is bought over or even when it goes public.    

Though hedge funds are showing great presence in the area of giving loans, they are not the only unconventional players in the market. Pension fund managers have also been spotted lately investing in oil and gas companies or even alternative energy projects.

Therefore what we are witnessing is a part of the evolution process of the financing of energy sector. For instance, not so long ago, most of the small energy startups got their financing from major energy companies, but after the Enron debacle, they have more or less refrained from such involvements. The Chron reports:

“And with all this money pouring in, borrowers may be able to negotiate better terms, said James Benson, a partner in Energy Spectrum Capital, a Dallas firm that advises and invests in the energy business”

Industry concerned about pension funds investing in hedge funds

The argument in favor an against pension funds investing in hedge funds continues. Several market watchers have observed that the pension funds are not by standers any more. They have taken the plunge with gusto. Though most of then are still at the fringes of the deadly hedge funds waters, there are several others who have been seen to be investing as much as almost 40%. One quick example of this is Weyerhaeuser, the Federal Way-based paper company that has 39 percent of its pension fund's assets in hedge funds. According to some estimates, almost 40 percent of all institutional money is coming from pension funds these days.

Estimates also suggest that large institutions will be investing as much as $300 billion in hedge funds by 2008. Therefore one can imagine as to the extent of pension fund money that is likely to flow in. What is further likely to make things easier for pension funds is the amendments being pushed for in the congress. These changes will enable more inflow of money from pension funds into hedge funds. More and more pension funds are today looking at hedge funds today as they look forward to getting better returns on their investments.

The sideways movement of the market has dampened the spirits of most pension officials and hence they have shifted to the more lucrative hedge funds. However industry analysts feel that the move is quite untimely since the hedge funds are not giving the kind of returns that they have been in the past. In the 1990s for instance, the returns were quite heady nearly touching 30% on several occasions. Managers such as Michael Steinhardt and George Soros made huge bets and showed many investors how much their investment was capable of generating returns. Today the returns are in the vicinity of 5.7%.

Analysts and academicians are also arguing if this kind of risk taking is necessary for pension funds at all. The sole purpose of hedge funds is to pay out a predetermined benefit to the retiring workers. In such a scenario it may be completely unwise to subject the investor money to unnecessary risk. 

Hedge funds make money by investing away from the conventional direction of the general market. As such they are at several times able to capitalize on the opportunities arising from such situations. However the betting can go completely wrong and thus can result in heavy losses. Hedge funds were designed primarily for wealthy investors and larger institutions that were sitting on a lot of money. Therefore even if they lost some money in the bargain, it did not seriously affect them.

However, people invest in pension funds primarily thinking about their life after retirement. The time when they will be old and may not have much by way of income to help them survive. They invest in pension funds by saving dollars from their day to day expenses. How wise is it then to subject all this hard earned money to so much risk. What the pension funds are doing is merely jeopardizing the future of the retirees all together.

Just to give an idea of the extent to which the pension funds are investing in hedge funds: General Motors fund is one of the first pensions to start working with hedge funds. It is also the nation's biggest corporate pension fund with over $90 billion. In 2003 the fund had merely $2 billion. We can clearly see the extent to which general public is investing in pension funds just so that they are able to secure their old age. Seattle Times reports:

“Most pension funds have modest stakes of less than 5 percent, according to a recent J.P. Morgan survey. Verizon has 3 to 4 percent of its portfolio invested with hedge funds, and is considering adding to its investment, said William F. Heitmann, senior vice president for finance.”

Hollywood Calling Hedge Funds and other investors!

After cinema house chain financing, here is one for cinema financing itself. Film financing is emerging as a very big investment arena for high net worth individuals, hedge funds and the likes. Most of them are not going home disappointed. The caveat is that they have to talk mega-bucks.

Tow movies that are on the market looking for suitable investors are ‘Kiev Nites’ and ‘Layers’. The former is an epic crime drama of the genre of ‘Casino’, ‘Scarface’ and ‘Goodfellas’ where as the later is a supernatural thriller like ‘Sixth Sense’. Both these movies are from the stable of Yuri Rutman who is the writer and producer of the two films. If reports are to be believed, the two movies have already attracted a lot of interest from seasoned, credible investors.

The list of high networth individuals who are generally interested in investing in movies such as these is quite impressive. In Rutmans words, they are the kind of people who really have a lot of money and don’t really know what to do. He also sees them as people who perhaps have a long cherished dream of getting into the movies. However in the same breath, there are others who find investing in movies as a good investment plan.

Irrespective of the category of investors, Rutman has two propositions – one is financing of films in the range of $1.5 to $2 million and the other is larger budgeted films. He feels that the former can be easily sold at film festivals but investors for the larger ones need to be thoroughly scanned. He is actually quite choosy about his investors. He feels that it is important for both the financer and the film maker to be on the same mental frequency in order to a have successful outcome. Click Press reports:

“I am talking with similar guys who recently sold their companies for a gazillion dollars, are bored, looking at the sunset in nowhere, USA, and have always wanted to be in the film business for tax, vanity, or alternative investment reasons".

CEO of Peregrine all set to launch a new hedge fund

Here is one good example of corporate governance and how it is being proposed to be used. The CEO of Peregrine Systems Inc, John Mutch is going the hedge funds way by launching a $250 million hedge fund. The fund will generate returns by buying stakes primarily in technology firms. Much then plans to prompt some organizational and operational changes within the organization and improve the value of shares.

He plans to select those companies that have a strong base but are lagging behind due to improper governance. Improper governance usually stems from the inefficiencies of the board members. Therefore Mutch plans to buy stake in each of the selected companies in the range of 4.9% to 20%. After doing this, he is confident that the board will listen to the changes that he will recommend. Though he is not vying for position on the board, but he will not shay away from it if it is required. 

The hedge fund goes by the name of MV Advisors and the parent company is based out of San-Diego. The fund promises to generate revenue to the tune of 20% for its investors. This will be achieved by investing chiefly in 10 or 12 companies with strong fundamentals but weak performance. The fund will take long positions on these funds, confident of helping the companies to improve their performance by good restructuring. In order to select the right companies for restructuring, one has to put in a lot of effort. Mutch has already scanned over 3,000 companies for the purpose. Out of these he has found some 30 companies that are worth investing in. The list is expected to be further trimmed.   

Mutch has a first hand feel of restructuring an organization and causing a major turn around. In 2003 he was hired by Peregrine while the bankruptcy proceedings on the company were on. He not only brought it back on its feet, but today the company is being bought over by Hewlett Packard for a whooping sum of $425 million. H-P plans to add Peregrine's technologies to OpenView software offerings. The announcement of acquisition was announced by HP in September 2005.    

Mutch has apparently met several institutional investors, including Hermes Pensions Management Ltd. and hopes to get a good inflow of investment money from them. ‘Investors’ reports:

“He'll sift around for companies with solid businesses, but with changes needed at the board level, such as separating the chief executive officer and chairman positions. Independent directors and a strong auditing firm are also essential, he said.”

Clarksons Capital hedge Fund to start trading in Freight derivatives

Pierre Aury, managing director of Clarksons Capital has reconfirmed his intent of launching shipping-only hedge fund. The fund is registered in Cayman Islands and is being launched in early 2006. Starting with seed money of $ 20 to 30 million the fund expects to attract at least $ 200 to 300 million. The fund plans to generate returns to the tune of 15 to 20% by using high-risk trading strategies in both the dry bulk and tanker markets, primarily derivatives. Clarksons Capital is a hedge fund floated by world’s largest shipbroker, Clarksons. Mr Aury made it clear that they are looking at investors who can invest upward of GBP 1m only.

The fund is currently being targeted at investors from outside the shipping world and expects to attract at least 20 clients to begin with. The fund will charge the regular management fee of 2%. On top of this a performance fee of 20% will be charged on the profits generated by the fund. Though the shipping people are not the exact target right now, the managing director says that in due course several shipping people are likely to join up as well.

Pierre Aury has a wealth of knowledge about the shipping industry. He has however hired several managers with hedge fund experience to manage the fund. Their exact background is not known though.

Shipping derivatives have been seen to be on a continuous growth path so much so that their overall traded volumes have increased by over four times in the last four years. Apart from this the fact that two more clearing services having opened up in London as well as in New York has had a positive influence on the trade. Other key players in the shipping-only hedge funds are Oceanic, Azimuth and Sector Asset Management. Hedge Week reports:

“Aury estimates that Clarksons Shipping Hedge Fund, as it will be known, could attract around 20 clients, and is being targeted in the first instance at professional investors from outside shipping, rather than shipowners in particular.” 

Hedge fund K Capital becomes a shareholder activist

Here is another example of hedge fund shareholder activism in action. Recently Boston based K Capital demanded that OfficeMax Inc put together a detailed turnaround plan to help improve business. K capital own 8.6% shares and is the largest shareholder in office supplies chain OfficeMax Inc. October end results of the chain were quite dismal and thus it led to K Capitals attempt to take the matter into their hands. It has asked the management to put forth both short term as well as long term plans and relevant benchmarks in order to access the proper functioning of the chain.

They have also initiated the process of asking independent board members to begin assessing the strategic value of the company. Some time back the company had extended the term of its chairman and Chief Executive. The hedge fund has specifically warned the company not to take such steps that are not good for the company as well as for the shareholders. Reuters reports:

“The hedge fund, which last month said it was "disappointed" the company extended the term of its chairman and chief executive, also asked OfficeMax not to take other actions that would "frustrate shareholders' legitimate rights to implement changes."

Another hedge fund ventures into Silicon Valley financing

After ‘Pay by Touch’ it is now the turn of NanoOpto to clinch a loan from the hedge funds industry. NanoOpto, an optical manufacturer has been able to get a loan of $5 million from Ritchie Capital’s $200-million venture debt fund. The debt fund focuses on high-growth companies with defensible intellectual property and provides them loans between $1 million and $5 million. Ritchie Capital was launched in September this year.

This is yet another instance of hedge funds venturing into the territory of venture capitalists. Venture capitalists traditionally back startups with innovative ideas and in return get a pert of the equity. Hedge funds on the other hand, loan the amount to the company and are in it for the interest. Both the parties seem to be satisfied currently. The start ups are happy that they do not have to part with their equity and hedge funds are not complaining either as they see a lot of growth in the Silicon Valley finance. Venture Capitalist are obviously not happy with the development. A division manager at Silicon Valley Bank, Tom Vertin voiced his concern that with more and more hedge funds jumping into the arena, there is quite a likelihood that poor investment decisions will be made. The continued growth in the segment is ‘unsustainable’

NanoOpto has the expertise to build nanoscale optical elements that someday may be an integral part of next-generation communications networks. It is an offshoot off Steve Chou’s research lab at Princeton University. Ed Zschau, chairman of NanoOpto was formerly a California Congressman and then turned to being a  Princeton professor.

The company has raised $43.3 million from three rounds of venture investment. Its key backers include Draper Fisher Jurvetson, Bessemer Venture Partners, New Enterprise Associates, and Morgenthaler Ventures. Red Herring reports:

“But Ritchie Capital’s new fund, and a growing trend of hedge funds lending to startups, has drawn criticism from traditional venture debt investors in Silicon Valley. “

Japanese investors investing more in hedge funds: A survey by Greenwich Associates

Japanese investors have up till now been known to be very conservative in nature. But a research report published recently by Greenwich Associates, the financial consultancy points otherwise. The report has been put together after in depth interviews with several Japanese institutional investors. The findings of the survey are quite startling. 4

Contrary to the common belief, at the end of last year, only 10% of UK and 28 % of US institutional investors had invested in hedge funds. Japan way ahead with over 55% of its institutional investors already investing in the mildly regulated and risky investment tool. Apart from this, what is also surprising is that percentage of assets under management has also increases over the last couple of years. The figure now stands at a whooping 13%.  This level of exposure is being labeled as the highest ever among any group of institutions in any market. 5

Today, Japanese institutions form the largest pool of investment capital in the world. The figure according to some estimates stands at about Y500,000bn today. Add to this, the survey revealed that now the Japanese institutional investors including pension funds are increasing their exposure to alternative investments such as hedge funds, real estate and private equity. This is part of their revised plans for asset allocations in the near future. 3

This change is being driven primarily by the fact that most Japanese pension fund managers are being plagued by under funding problems. Therefore they are being forced to take on additional risks in order to make pay outs. What is also happening simultaneously is that Japanese institutions are in the process of reducing investments in domestic and international equities. Despite the changes, the equities will still account for most part of their portfolios. Msnbc.msn.com reports:

“While hedge funds have been seen as a valuable alternative for institutions throughout the period of sluggish domestic equity performance, this year investors will be weighing their performance, volatility and fees against a much stronger equity benchmark," the report concludes.”

Hedge Fund finds an innovative way to boost returns

One of the key characteristics of Hedge funds is the ability to continuously re-invent or change its strategies. Armed with this flexibility, they are able to make money even when the going is tough for traditional investment tools. All that a fund manager has to do is think out of the box. A recent example of London based Psolve Alternative Investments investing in an esoteric area of trailer park finance is an interesting one. Its managing director, Soondra Appavoo sees great revenue walking out of the investment.

He feels that by keeping ones eyes open to a variety of investment strategies, a hedge fund can garner better returns that what is currently being earned. Standard & Poor's Fund Services indicates that hedge fund returns so far this year have been around 3.3 percent, but Psolve is confident of closing the year with a profit of 15%. He feels that smaller hedge funds have a direct advantage of size and speed of acting and hence can rake in bigger moolah compared to their bigger and bulkier counterparts. Psolve manages about $300 million in three funds of hedge funds. Bigger hedge funds are nervous of taking risk these days because they do not want to loose money. Smaller funds on the other hand have less amount to handle and therefore their bets are smaller and of course the risks are proportionate. They have a direct advantage of ‘nimbleness’.

Trailer park finance may sound quite unconventional at first but Appavoo’s argument in its favor can bowl you over. He says that there are quite a few poor people in the U.S. who need to live in trailers. They need to buy trailers but off late banks are not very enthusiastic about giving loans to smaller companies. So a category does exist. The only flip side is that there is risk of unsecured debt transaction because the trailer owners do not own the land on which the trailers are parked. Today.reuters.co.uk reports:

"You've got to look where the opportunities are and the opportunities come from niche markets. Niche markets can sometimes be esoteric, like trailer parks, or sometimes mainstream," Appavoo told Reuters on Wednesday

Now two mutual funds that behave like Hedge Funds!!

What every small time investor, envious of hedge fund investors and their returns has been waiting for is finally here. Rydex Investments has recently launched two mutual funds aptly called Rydex Hedged Equity Fund and The Absolute Return Strategy Fund. Both the funds will use market neutral strategies to help small mutual funds investors to have a taste of absolute returns. Market neutral strategies are generally employed by hedge funds to help generate profits in any type of market scenario. The two funds are likely to offer investors access to investor tools, which were earlier not available to investors of traditional investment vehicles. With these tools the investors will be able to make profits even when traditional stock and bond fund products generate small returns or even losses because of down or range-bound markets.   

Rydex Hedged Equity Fund is expected to use strategies like building portfolio consisting of long positions in value stocks combined with short positions in non-value stocks. They will also use long positions in growth stocks and short positions in non-growth stocks. Along with this some other investment strategies like merger arbitrage and covered call options are also likely to be used.

The other innovative fund launched by Rydex is the Absolute Return Strategy Fund. The fund expects to use market neutral value and growth strategies and other such commodities or fixed income in order to generate income.

The two funds are innovative because they have been able to address the long-standing need of play safe investors to have above average returns on their investments. Traditionally hedge funds that are fames to generate such returns require the investors to part with huge sums of money. For instance investor has to invest upwards of $1 million in order to gain entry into the coveted funds.

Off late this amount has come down to $250,000 for several funds of hedge funds, but is still quite out of reach of common investors. Compare this with the average money, $1,000 that the investors of any of the two new mutual funds have invest in order to gain entry into the funds. This definitely is a worthwhile option to explore. Today. Reuters.com reports:

"With traditional fund products investors had "limited tools to mitigate down markets" and "didn't have anything to address it head on," David Reilly, director of portfolio strategy for Rydex, said at a briefing in New York"    
 

Pay by touch gets funding from unconventional route - Hedge Funds

What happens when innovative financing backs revolutionary technology - a sure shot winner in the making! Such seems to be the case with San Francisco-based Pay By Touch. Pay By Touch Solutions develops retailer payment systems using "biometric" touchpad technology. This revolutionary technology enables customers at departmental stores or elsewhere to use their fingerprints instead of the traditional credit cards.  All they have to do is have their fingers scanned by a device, which identifies them and there after authorizes payments for the goods bought at the outlet.   

Stores like Piggly Wiggly in Carolina have already adopted the technology and offers it as another payment option. Some more stores like Albertsons and SuperValu in the U.S. and OSG Co-Op in the U.K are on the brink of introducing the service.

The company recently raised $130 million in financing, largely from hedge fund investors. For venture-backed growth companies, this is a rather uncommon path to follow. They usually get all their financing done by VC firms that take a part of the equity in return for the money they put in. Pay By Touch Solutions on the other hand was interested in debt financing that would leave their equity alone.

The additional funds have been garnered $75 million by way of senior secured notes from Och-Ziff Capital Management, Farallon Capital Management and Plainfield Asset Management. Add to this $55 million was raised in convertible preferred notes. In this case, Getty Trusts and Ron Burkle, founder and managing partner in the Yucaipa Cos played a major role. 

Apart from this, the company was confident that for this type of business they did not need help in attracting management talent, which comes in as a package deal when one deals with VCs. They have however brought on board John Morris who is a former senior IBM executive. John will be the company's president and chief operating officer. Today.reuters.com reports:

"An additional $55 million was raised in convertible preferred notes, with investors including the Getty Trusts, an original backer of the company, and Ron Burkle, founder and managing partner in the Yucaipa Cos., and others. UBS advised Pay By Touch"

New Robertson-backed fund tests "liquidity theory"

Here is one more player to add on to the already bursting figure of 8000 hedge funds existing today. Charles Biderman has floated a new hedge fund, called Trim Tabs Asset Management. The fund is supported by the legendary technology banker Sandy Robertson. Sandy Robertson sees this fund to be quite different from the others in existence today. The new fund rests on the plank of 'Liquidity Theory'. The theory presupposes that markets gain or lose on changes to the sum of outstanding shares.

Therefore the primary driver of the stock market, according to the theory, isn't really earnings but due to changes in the total number of outstanding shares that are traded on stock exchanges. Only time will tell whether TrimTabs' strategic differences will be able to produce the kind of gains that are now expected of hedge funds. Robertson who is 74 now is the co-founder of Silicon Valley's famed former powerhouse Robertson, Stephens & Co. and is also an avid investor in hedge funds. News.moneycentral.msn.com reports:

"For instance, the theory suggests that markets tend to rise following periods when corporations buy back shares, buy other public companies or take other measures that reduce the pool of available stock."

Real Estate may hold the key to future prosperity of Hedge Funds

Hedge funds have been seen courting real estate investment markets lately. The shift from the so-called conventional hedge fund investment strategies to real estate is a recent trend. Industry analysts feel that this trend is likely to be there for a while. The shift to this sector seems to be prima facea due to decreasing moneymaking opportunities from the mispricing or event driven opportunities. The hedge funds are now looking at more lucrative markets or sectors and real estate investments is one of them.

Recently a symposium was conducted in Monaco, which brought together managers both from hedge funds (considered as completely liquid investments) and from the real estate investment industry (the most illiquid of the alternative investments). This was the first time in 10 years that the two came together at the High-Performance Investing Symposium from Information Management Network's. It was highlighted that in the last few years, the number of real estate investment markets and products has increases many fold. Dominic Field, director at CSFB Real Estate Private Fund Group, mentioned that the future of real estate is bright and likely to stay unlike the small blip it showed in the early 1990s.

Hedge funds are taking cautious first steps in the direction with the lure of average IRR offered in the range of 20 to 25%. This is a decent return when one considers that in the last few years, the hedge funds have been witnessing a gradual decline in their returns. One would recall that in 2003 the average return registered was 15%. In 2004 however this value came down to 9.5% and the industry will be happy if it closes the current year around 5 to 7%.

Hedge funds are generally associated with quick in and out strategies generating instant returns. Real estate investments are quite unlike the traditional hedge funds investment strategies. They require long time commitment of 'buy and hold'. Quite typically the investor is required to hold the property for at least two to three years. But then analysts are seeing this as a positive shift especially taking into account the growing number of pension funds that are looking at the hedge fund industry for returns albeit with some general assurance of predictability.

The real estate industry is also facing some threats primarily due to expansion in bond yields. However unlike in the 1970s and the 1980's the current property Bull Run could last for a while. It is imperative at this stage to understand the reason for the category showing a possible upswing. When one invests in property, the pricing generally takes place taking into account the rent one receives from that property or more specifically the rent as a proportion of the capital value. It therefore trades at a premium to the risk-free rate, or the yield on government bonds. And with the U.S. Federal Reserve raising the interest rates, global bond yields have been witnessing an upward swing.

But again the real talent is in identifying the investment opportunities, as this cannot be regarded as a global phenomenon. Germany for instance is showing good promise on residential property with the rent and home ownership levels are considerably low. It therefore can provide upside potential for investors. Today.reuters.com reports:

"This stellar performance has attracted the attention of the $1 trillion hedge fund industry, which is making its first tentative steps into direct opportunistic investment in properties -- generally offering internal rates of return of 20 percent to 25 percent and above"

Hedge Funds turning to reinsurance after Hurricane Katrina

When traditional modes of generating returns dry out what does a hedge fund do? It invests in another area which has likely to generate returns. This is how hedge funds really make money year after year. Hurricane Katrina may have left several homeless and without a life altogether, but hedge funds are treating this event as another source to generate money.

Heavy losses were reported after the hurricane hit the United States. As such, insurance companies were over burdened with the claims coming in. Seeing this as an absolute opportunity, some hedge funds have leapt into the arena. They have already or are in the process of setting up reinsurance companies.  Most of the reinsurers are registered in Bermuda or the Cayman Islands. They will underwrite the risks and costs of natural catastrophes such as hurricanes and earthquakes for the insurance sector.

There are expectations of a deluge of premiums after the catastrophe and as such the reinsurance sector is slated for boom time. Experts in the field also feel that the insurance premiums are likely to increase in view of natural disasters such as this. However it is also felt that most of these funds are not likely to set up reinsurance companies themselves. They will be investing their underwriting capital in somewhat safer instruments like government bonds which will also earn yield for them.

As of now there are no catastrophe pricing risk models into existence and as such investing in the area might be a little risky. It is also worth a mention that the databases which are required to build these models are big and are extremely costly to maintain. Today.reuters.co.uk reports:

“The main marketing story is that the returns are essentially uncorrelated," an analyst at a London-based fund of hedge funds firm said. "But it's a risky business they are getting into, and nobody really knows how good the catastrophe pricing risk models are."

Now hedge funds finance films!!

If you thought entertainment was just entertaining and fun, think again. Entertainment and film making is hard core business with millions of dollars earned or lost while providing entertainment for people. We all know that the films have their own financers. What we did not know that money came from hedge funds too. Take the case of Walt Disney Co which makes movies for children and adults alike. It has recently indicated that it is going to loose money in the fourth quarter of 2005 which will be close to $300 million. It has raised a whopping sum of $505 millions from investors.

This has been done primarily with the objective of reducing the overall risk for the film company. The company first started using partnerships to fund films in the 1980s. In 1990, the company which was then the No. 2 U.S. media company was able to raise $600 million through Touchwood Pacific Partners. After 1996, almost a decade later, Disney has joined hands with The Kingdom Films LLC partnership to finance 40 percent of production and distribution costs for about 32 films over the next four years.

For this they will get 40 percent of the profits, including box office and video sales. This news was made public by Natacha Rafalski who is the vice president of corporate finance at Burbank, California-based Disney. Disney however will get 60% of distribution fees and profits. Kingdom Films has been set up in June by Credit Suisse First Boston whose DLJ Investment Partners II, a $1.6 billion investment fund, is the lead investor in Kingdom Films. CSFB has raised $135 million in equity and $370 million in debt from hedge funds, insurance companies and mezzanine funds. Rafalski mentioned that earlier hedge funds required higher returns to invest. But not the scenario has somewhat changed. They have now been able to design a structure which is mutually beneficial for both Kingdom films as well as for the hedge funds.

Through the years, film making has become a very costly proposition. Just to give you an idea - the average price for producing and marketing a major motion picture has already crossed the $100 million mark. The deal with Kingdom Films is that they will finance all the live-action movies produced under the Walt Disney and Touchstone Pictures labels during the next three to four years. They will however not be included on production of some animated films and some prequels and sequels. Disney will produce 15 movies this year against 19 movies that were made last year.

The long term financing partnership is beneficial for partnerships like Kingdom films since the risk of loosing money is less for several movies as against financing one movie that was to work but just did not. Bloomberg.com reports:

“The deal guarantees Disney distribution fees and 60 percent of the profits, Disney spokesman David Caouette said. Disney last week said its film unit will have a fourth-quarter loss of as much as $300 million.

Read More: Disney Taps Hedge Funds, Investors to Share Film Funding Risk

Now retail investors also have access to hedge funds!

Now here is one Hedge Fund that caters to the retail segment apart from being appealing to the whole sale investors. Macquarie Bank through its Macquarie Newton Hedge funds have for the past three years been managing assets for large investors. The funds offer variety as far as strategy is concerned as well as differential exposure to risk. The range of funds that are already on offer includes five single strategy funds - special events fund, Australian Absolute Return Fund, Buy Write Fund, Global Futures Fund and Global Equity Futures Fund – enhanced.

Apart from this the fund also offers single manager multi-strategy fund called the Macquarie Newton Multi-Strategy fund. This fund offers investors entry into four of the single strategy funds within one investment. The new fund that is being launched is very specialized as it is attractive to the retail investor. We are talking about the investor who is hedge funds savvy but lacks the opportunity to actually invest since the initial investment amount asked for is usually quite high. Through this fund the investor will be able to have access to the famed absolute returns with relatively lesser amount of money.

Cathy Kovacs, Macquarie Bank division director for its equity markets group commented that the financial scenario is changing. People are now generally comfortable with funds that use short selling strategies in contrast to what was there in yesteryears. She mentioned that the fund has very high growth targets set for the next two years. The current asset stands at $92 million and the projection for the next two years is to make this figure jump over five times to around $500 million.

She is feels that the task is not too daunting. According to her, both domestic as well as offshore investors will be quite excited about the fund as it also caters to the real Asian market. The Asian market is really on an upswing, especially Hong Kong, Singapore and Japan. As such more and more investors want to invest in funds that are investing in this geographical area. Thefinancialstandard.com reports:

“Macquarie Bank division director for its equity markets group Cathy Kovacs says the market has now changed with the growth in alternative investments and advisers who more comfortable with funds who use short selling strategies”

Read More: Hedge Funds open to the retail market

London Becomes Dominant Force in Hedge Fund Industry

What is one of the fastest growing industries in Britain? The answer to that question has become apparent to investors over the past year. Hedge funds in Britain have grown by leaps and bounds in terms of dollars. Now a $190 billion industry, hedge funds are the new financial darling in the British Market. Increasing it global market share from 15% to 20%, London has made a name for itself as a dominant force in the hedge fund industry. According to Timesonline.co.uk:

London increased its global market share of hedge funds from 15 per cent to 20 per cent, while its share of the European market rose from 70 per cent to 74 per cent. The capital’s dominance was due to local expertise, the proximity of clients, a strong traditional fund management industry and favourable regulation,

Read more: Hedge funds prove good bet for capital

Hedge Funds and the London Market

London's hedge fund market grew more than 20% last year. Because of lenient regulations, close proximity to high end clients, and being recognized as a financial mecca, London has drawn a big crowd of hedge fund managers. More funds were set up in London last year than there were in the U.S.

New York is still the number one hedge fund market, but London is in a close second. With 900 funds, London's hedge fund market grew to an astonishing $190 billion last year. Various districts in London have felt the effects of the ever growing hedge fund industry According to Bloomberg.com:

The city's share of the global hedge fund market grew to more than 20 percent last year as more funds were set up there than in the U.S., according to the organization, which promotes the U.K. finance industry worldwide

Read more: Lond Controls a Fifth of Hedge Fund Assets

Hong Kong and Hedge Funds

Hong Kong, a new edition to the field of retail hedge funds, has experinced immense success recently. The success is a result of the normally high riske hedge funds being in a regulatory environment. The new envirnonment appears to be attracting many investors.

Man Investments, one of the world's largest hedge funds, is on the forefront in Hong Kong with about 42 billion in funds under management. Since less money is needed to be involved in a hedge fund in Hong Kong, it truly is more accessible to the common investor as opposed to the American Market. According to yahoo.com:

"Hong Kong is one of the most successful retail hedge fund spaces anywhere," Lee said. "Along with Singapore, Hong Kong was one of the first to embrace retail hedge funds in Asia. In the U.S. and Europe, demand has been primarily institutional."

Read more: Asia Fund View: Hedge Funds Popular Among HK Investors

Strategies and Hedge Funds

With hedge funds currently being in the financial world forefront, many mutual funds have taken notice and are beginning to offer similar investment strategies. Although mutual funds are attempting to follow comparable strategies to hedge funds, the two funds are far from identical. The list of differences starts with the way the funds are regulated. Mutual funds have to abide by much more stringent guidelines set by the Securities and Exchange Commission, while hedge funds don't even have to register with the SEC.

In the U.S., there are now about 8,000 hedge funds with 1 trillion under management. The popularity of hedge funds has risen tremendously over the past couple of years, so it is no wonder that mutual funds want to jump on the hedge fund band wagon. Still, investors remain weary since hedge funds have been compared to a "bubble" that could potentially "pop." Thestreet.com reports:

Staggeringly high minimum requirements and exotic-sounding investment strategies kept retail investors on the outside looking in.

Read more: Playing the Hedge Fund Craze

Hedge Funds and the Indian Markets

Samir Arora, former chief investment officer of Alliance Mutual Fund, will reportedly launch a hedge fund in April.   The charges that were brought forth on Arora by the Securities and Exchange Board of India last year were dropped when no substantial evidence could be found.  It is believed that Arora is currently marketing the fund to oversea investors.

Recently, other Indian fund managers have been attracted to hedge funds because of their potential big pay day.  Still, experts in India warn that the cons outweigh the alluring pros.  The Indian Markets are currently in a bull phase, and arguably chaos will ensue, where hedge funds are concerned, when that changes.   Rediff.com reports:

"Things at hedge funds are not as rosy as they look from the outside. The Indian markets are in a structural bull phase. So it is easy to make money.  The challenge will come when the markets are declining. We will have to protect the assets of investors and also give them decent returns."

Read more: Samir Arora to launch hedge fund